You may have heard the central banks in Japan and several countries in Europe have implemented negative interest rates. They are hoping the banks that deposit funds with the central bank will be incented to loan the money out versus receive less when they make a withdrawal.

There have been some reports negative rates have made their way into consumer products in Europe, specifically mortgages. At least one bank in Spain, Bankinter, with mortgage rates tied to Swiss Libor which is now approaching minus 1%, sold mortgages that it could not charge interest on so it reduced principle for some of its customers. For the most part, negative interest rates are a policy tool between central banks and those banks the deposit funds with them.

Here in the U.S. rates are still positive but barely. The Federal Reserve started the process of raising rates at the end of 2015 but they have been on hold since. Economic data, while not deteriorating, is not improving either. The U.S. economy appears to be stuck in a slow growth mode.

Eventually this could turn into a big problem because a lot of debt has been accumulated trying to stimulate the U.S. economy. This is why policy makers are so desperate to see economic activity pickup.

It would be quite a turn of events if the U.S. switched form raising rates to negative rates after holding ultra-low rates for such an extended period of time. It could happen and if the 10-year Treasury yield falls below 1.5% we may see it happen. However, helicopter money may become the policy tool of choice going forward. I’ll have some more to say about that in the future.